Crisis Hits Values of Commercial Mortgages

"It's gotten to the point where I believe it's more about fear than anything else," she said. "But at some point if borrowers and real estate [investors] cannot get capital, then you really do start to have fundamental issues."

Some investors were banking on the Treasury Department's financial industry bailout plan to keep the commercial-mortgage-backed securities market propped up. They hoped that cash-strapped banks would either be able to sell those assets to the federal government or get more breathing room to sit on their holdings by offloading other assets onto the government.

But late last week, the Treasury Department announced that it wouldn't buy any assets from banks under its Troubled Asset Relief Program, and instead would use TARP funds to buy stock in banks.

"That was the last hope for a lot of people," said Sean Kirk, a trader at the Seaport Group in Miami Beach. "After two months of holding out for some sort of miracle bid, the market realized it was not going to be there, and now these things are trading at liquidation levels."

Adding to the panic is a spate of recent bankruptcy filings by high-profile merchants such as Circuit City. Dimming prospects for consumer spending in a slowing economy has stirred concern about the value of commercial-mortgage bonds tied to properties dependent on retail tenants.

General Growth Properties, which owns shopping malls around the country and acquired the developer of Columbia, Md., in 2004, is trying to stave off filing for bankruptcy protection as it struggles to refinance more than $27 billion of debt. The Chicago-based company, which took on debt when it bought the Rouse Co., announced yesterday that it has hired law firm Sidley Austin as a financial advisor.

Hedgpeth reported from Washington.